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Aligning With Customers’ Complicated Values

Utility executives must grapple with increased challenges to their business model while deploying new, emerging technologies that may revolutionize their operations. To better understand how the executives perceive and deal with disruptive threats, The Energy Times recently convened a discussion with industry executives. We will present their insights, edited for style and length, in coming weeks. The series is sponsored by Oracle.

First up is Robert Rowe, president and chief executive ofNorthWestern Energy, which serves 416,000 electric and 276,000 natural gas customers.

Energy Times: What are the prospects for solar power?

Robert Rowe

Rowe: We see significant interest in solar in our Montana electric service territory. We haven’t seen nearly as much in South Dakota. Our Montana generation portfolio is nearly 70 percent hydro or wind. It’s fundamentally a hydro-based system. As a result of that, we lowered the carbon intensity of our Montana portfolio over 40 percent. As a utility in a coal generating and coal exporting state, we are actually in compliance with the Environmental Protection Agency’s target for carbon emission in Montana in 2030. And we have, by the way, prices about 18-20 percent below the national average. On top of that, there really is significant interest by some customers in solar. We recently announced that we will be undertaking a pilot program to understand the opportunities to integrate solar in our grid.

Energy Times: Will the latest energy technologies be slow to come to rural America?

Rowe: Some of the most dramatic innovation, arguably promoting both more distributed models and solar, has been on the financial side. To some extent the regulatory model can constrain the traditional utility from participating in those markets. We’ve been looking at disruptive technologies at Northwestern for a number of years, trying to understand what they are. Some of the investments that we’re going to be making over the coming year or so actually will be in relatively urban and rapid growing areas. We’re trying to understand both the rural and the urban opportunities. The other thing that’s been important to Northwestern has been participating in the Pacific Northwest Regional Smart Grid Pilot, which by some reports is the largest smart grid pilot in the world. That project has now been concluded and we’re looking very closely at what the key outcomes from the regional pilot are that make sense in our operations.

Energy Times: How is technology transforming Northwestern?

Rowe: There is so much technology that we’re deploying that is becoming increasingly visible to customers. It is helping us increase the personal connection with our customers. In Montana we just went through several big technology projects that enabled us to reopen our Montana offices to walk-in customer tracking. Northwestern for a number of years has focused on the physical infrastructure, the got to do stuff, poles, overhead and underground wires. But we are also focused on back office systems, being very thoughtful deploying technology as it makes sense.

Energy Times: How should regulation change?

Rowe: I would like to see us move more towards recovering fixed costs. As for moving from a heavily volumetric rate design to one that is more associated with fixed prices, it’s tough because we’re all somewhat reluctant to move too quickly away from what we’re comfortable with. There is concern among some about losing the price signal to conserve. There’s an interesting intermediate point – a minimum bill but with the basic fix charge credited back against your consumption for that month. This is something we really need to work out. It’s very much tied to concerns about net metering, evolution of the grid, the strong policy imperative for increased network investment to support all of the things that policy makers would like to see happen on the grid.

Energy Times: Is the industry headed toward more mergers and acquisitions?

Rowe: There is certainly a normal pattern of consolidation that occurs. Right now there is more of a mosaic. You see privatization of publicly-owned assets. You see private owners’ assets becoming publicly traded. One of the things that the policymakers – both elected and appointed, legislative and regulatory – need to be aware of is the degree that their actions are creating greater risk and uncertainty. That by itself creates pretty strong incentives for increased consolidation which may bring with it some of the things that they might not want to see. The result could be a company that is getting a little bit further from the customer, a little bit further from the regulator, difficult to access, with jobs being eliminated.

Energy Times: What is the biggest change you now confront?

Rowe: The most important thing is being sure that we are aligned with our customers who have much more complicated values than used to be the case.